Monday, September 9, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 06, ‘13

S&P 500 Index Chart

Both good news and bad news for the bulls are visible on the daily bar chart pattern of S&P 500 index. First, the good news: the index was trying to find a bottom at the 1630 level a week ago; it seems to have done so. The index rallied in a holiday-shortened week, and briefly entered bull territory (above its three EMAs), but encountered twin resistances from its 20 day and 50 day EMAs.

There was decent volume support. The 200 day EMA is rising and the index is trading well above it – a sign of a bull market. Daily technical indicators are turning bullish, but haven’t done so yet. MACD is trying to cross above its signal line in negative territory. RSI has moved up towards its 50% level. Slow stochastic has climbed above its 50% level.

Now, the bad news. All three daily technical indicators are showing negative divergences by forming bearish patterns of lower tops and lower bottoms from May ‘13 onwards, while the index has formed a bullish pattern of higher tops and higher bottoms. The combined negative divergences may lead to a deeper correction.

The jobs report was a bit of a damp squib. Initial claims of unemployment benefits continued to slide. But jobs growth was lower than expected. Jun ‘13 and Jul ‘13 job growth rates were adjusted down. These are not good signs for an economy that is trying to return to a growth path.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of FTSE 100 index is back in bull territory. It overcame resistance from its entangled 20 day and 50 day EMAs to close above the 6500 level. However, volumes have not been encouraging, which may hamper the sustainability of the rally.

Daily technical indicators are turning bullish. MACD is slightly negative but has moved above its signal line. Both RSI and Slow stochastic have risen above their respective 50% levels. The index is trading above its rising 200 day EMA, and is in a long-term bull market is intact though it has made no gains since touching its May ‘13 top.

UK’s economy seems to be recovering better than expected – going by rising car sales and home prices.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are trying to recover from bull market corrections, but are not quite out of the woods yet. Invest gradually, with strict stop-losses at the recent Aug ‘13 lows.